Hong Kong's Piketty problem

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Li Ka-shing may sleep better at night now. One of the world's richest men, the 86-year-old insomniac inveighed last month against the corrosive impact of Hong Kong's inequality, and fretted over lumpenproletariat discontent:

The howl of rage from polarization and the crippling cost of welfare is a toxic cocktail commingled to stall growth and foster discontent. Trust enables us to live in harmony, without which more people will lose faith in the system, breeding skepticism towards what is fair and just, doubting everything, and believing all has turned sour and rancid.

Although the speech was about economics, the political signal (particularly through references to 'harmony' and 'trust') was obvious to locals: Hong Kong is turning against big business at its peril, and democracy will lead to ruin.

Beijing has delivered a predictably hard-line ruling on the nomination process for the 2017 chief executive election, presumably to Li's liking: Hong Kongers can vote, but candidates must be pre-approved by at least half the business-stacked electoral college. Leader of the pro-democracy Occupy Central movement Benny Tai conceded quickly that he had failed to sway Beijing and that support from a pragmatic public is waning. Some mock Tai for chickening out, but he has made a Solomonic judgment to preserve rather than destroy.

Preparing the ground a week before the announcement from Beijing, Tsinghua law dean Wang Zhenmin explained that 'the business community is a reality. Even though it's a small group of people, they control the destiny of the economy of Hong Kong. If we ignore their interest, Hong Kong capitalism will stop.' Wang reasonably advised patience: 'less perfect suffrage is better than no universal suffrage, leave some room for future growth.'

The People's Daily pitched the decision as 'crucial to the fundamental interest of foreign investors.' The Great Helmsman must be turning in his mausoleum.

The pro-business spin is described as 'killing democracy to save capitalism' by one commentator, who notes that Beijing's determination to control the 'political machinery' of Hong Kong underscores 'a clear interest in preserving (its) position as China's leading financial marketplace.' This then could all be seen as an affirmation of Hong Kong's robust capitalism.

They mistake low tax rates and no-questions-asked transactions for free enterprise. In fact, almost every sector in the territory – land, retailing, telecoms, media, utilities, and the electoral nomination committee – is dominated by a few families. Anti-trust probes are toothless. The nexus between real estate and politics is dangerous everywhere, but in Hong Kong much more so because huge entry barriers are reinforced by ever-higher land tenders. In this spiral of oligo-capitalism, the big get bigger and customers pay up.

The dissatisfaction is captured by Henny Sender in the FT, who wryly jokes that 'you know you have a problem when even second-tier tycoons feel disenfranchised.' Her view that mainlanders 'have prospered disproportionately more' than locals is widely shared, although debatable. Hong Kong's wealth inequality is home-grown, accumulating during and since British colonial rule. The land policies that have driven housing to the world's least affordable were established decades ago. We have a true Piketty problem, where capital returns have outstripped wage income for decades. Inequality fuels the democracy protests, and the insinuation is often made that Beijing, as the godfather of the robber barons, somehow is nefariously responsible. But the inequality cake was baked long before 1997.

The more troubling contention is the democracy-versus-business debate. It is a false choice propagated by conservative elites who, rationally, seek to protect their wealth from the predation of the welfare state. The debate is cynically conflated with commercial fears over 'political instability', as if small businesses should care more about street marches than the heavy exactions of the oligarchs' cartels.

At the middle of every cartel is Li Ka-shing. He is known locally as 'Superman' for his prophetic financial bets. So it is concerning, and ironic, that in recent years he has been systematically selling down his Hong Kong (and China) exposures and reinvesting in safe democracies overseas where rule of law is predictable. If even Beijing's strong business advocacy, backed by the PLA's nocturnal tank drills, fails to reassure him, perhaps the rest of Hong Kong should be sleepless too.